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Comment by coderholic | Hacker News Reader

Won't you only pay a % of the gain in price in tax? In that case you're strictly worse if it goes down in price. You'd pay less tax, yes, but as tax is % of gains you're net worse off. If this really isn't the case can you share some example numbers showing how you can be worse off with a house that's worth more?

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Suppose we bought our house for $1M and now it's worth $2M. We have to pay 25% cap gains (federal + state) on $500k so it costs us $125k to move to a house of equal value. If prices were stable, we could move without taking that hit. The higher prices go, the higher the cost of moving.

You are better off unless you bought the large house for cash. Otherwise, you made a big gain in leveraged terms.

What you say is true, but it misses the point, which is that big gains only help you if you actually cash out. If you're making a lateral move, or downsizing in the same area, it doesn't matter whether you're leveraged or not. A loss is still a loss.

The example is useful, thanks. I see that there's $125k of cap gains to pay for a move to a property of the same price. You're calling that a loss though, and I'm not sure I see it that way. Sure, if house prices hadn't gone up you could have moved from a $1M house to another $1M house and paid nothing. But in your example you're still $875k "in profit", so it's not really a loss, it's just a cost associated with a lateral move in the same area. If you downsize you actually realize some of those gains - of course not all of them because tax must be paid, but there's no avoiding taxes :)

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